Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
Let's take a look at the top stories in biotech and health care this morning -- keep an eye out for AstraZeneca PLC (NYSE: AZN ) , Durata Therapeutics (NASDAQ: DRTX ) and Intercept Pharmaceuticals (NASDAQ: ICPT ) .
AstraZeneca slips on downgrade
AstraZeneca is down over 2% in premarket this morning after Morgan Stanley downgraded the company's shares from Equalweight to Underweight, noting that institutions have been reducing their stake of late. This downgrade isn't surprising given AstraZeneca's weak guidance for 2014, more key drugs coming off of patent protection, and the company's share buyback program stalled for the foreseeable future. Put simply, AstraZeneca is a company in transition right now.
On the bright side, AstraZeneca does offer one of the highest dividends in the health care sector, with a yield of 5.7% at current levels. And the company does have a strong clinical pipeline that should help it transition successfully into a new generation of commercial products. In sum, I think AstraZeneca deserves a good look by investors with a long-term outlook, especially if the stock pulls back from its year-long 49% climb.
Durata handily beats earnings estimates
Durata Therapeutics reported a net loss per share this morning of -$0.59 for the fourth quarter of 2013, or 22% lower than what Wall Street was expecting. So far, the market is reacting well to this news with Durata shares up almost 3% in premarket trading. Digging into the details, Durata was able to shrink its losses in the quarter because of a credit agreement with PDL Biopharma that enabled the company to repay some of its higher interest debt.
While shrinking losses are always a good thing, all eyes will undoubtedly be on Durata's experimental drug dalbavancin for the next two months, as it heads into a regulatory review with the U.S. Food and Drug Administration, or FDA, on May 26th. For those new to this story, dalbavancin is indicated as a potential treatment for acute bacterial skin infections, and could be a game-changer for this small, developmental biotech. What's important to understand is that the stock has run up 60% ahead of this regulatory review and the company has already committed significant resources to the drug's commercial launch later this year. So, it's safe to say that a lot is riding on a successful regulatory review come May.
Intercept gets another upgrade
Intercept Pharmaceuticals is up almost 6% this morning after receiving another bullish upgrade from Citigroup. By my count, this is the third time Citigroup has upgraded Intercept since the start of the year. The present upgrade suggests the stock has an eye-popping 56% upside potential from yesterday's closing price of $447.97.
I recently opined about Intercept's prospects, and also came to the conclusion that the stock had more upside potential--despite its monstrous 900% rally in the past year. Nevertheless, I believe there is still a lot to be sorted out regarding Intercept's Non-Alcoholic Steatohepatitis (NASH) therapy known as obeticholic acid (OCA). Specifically, it's unclear if the FDA will require another study to investigate OCA's tendency to increase so-called "bad" cholesterol prior to approval, or how a much anticipated partnership would play out in terms of revenue sharing, milestone payments, etc. In short, I think there are too many unknowns at this point for such optimistic outlooks. That said, I do believe Intercept will head higher from current levels, but how high will depend ultimately on the details of OCA's regulatory review and the logistics of its commercialization.
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